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description

Competition is present, explicitly or implicitly, in many business negotiations. Rarely in buyer-seller negotiations are the bargainers stuck with each other, usually they have an alternative trading partner to whom they can turn. The terms of agreement that are negotiated are shaped by the fact that the alternatives exist. The ability to exploit competition among potential trading partners is a major source of bargaining power. Competition within a negotiation works much like competition in a formal auction. The case describes the bidding for television rights.

learning objective:

To stimulate discussion of the effects of competition and of how the rules of the bidding game affect the intensity of the competition. Also, to introduce some ideas in the economic theory of auctions, including the nature of the uncertainty (common values vs. independent private values), open auction vs. sealed bids, the gains from revenue sharing, and competition vs. collusion.